A cohort of environmental groups have asked the Competition Bureau to reject Royal Bank of Canada’s proposed takeover of HSBC Canada, arguing the sale would limit green choices in the banking sector and expose Canada’s economy to more climate risks.

Julie Segal, senior manager of climate finance at Environmental Defence Canada, one of the organizations behind the letter, said the case is a “really important litmus test” of how Canada enforces its climate goals within the private sector.

“Climate change is a competition issue that the Competition Bureau should consider in this decision,” Segal told BNNBloomberg.ca in a phone interview.

The letter, which was also sent to federal ministers of finance and environment, was submitted as part of the competition czar’s review process in its investigation of the $13.5-billion acquisition and its potential anti-competitive effects. A public call for information is open until June 1.

The Competition Bureau is seeking input on potential impacts of the takeover on financial services such as mortgages, lending and bank accounts. In their letter, organizations including Environmental Defence, Stand.Earth, LeadNow and Climate Action Network Canada argued that climate change is a “fundamental concern” that is being overlooked as a competitive lens.

They pointed to RBC’s record of providing financing of “high-emitting companies.” The bank was named the top financer of fossil fuels in an annual report from environmental groups in 2022, with US$42 billion in funding – compared with HSBC’s sustainability commitments around green bonds, reduced financing of fossil fuels and efforts to stop funding new oil and gas projects.

The loss of HSBC as a direct competitor in Canada would be “significant,” Segal said, as it would remove competitive pressure on RBC and other banks to bring operations in line with climate goals.

“If RBC takes over the greener HSBC Canada it will remove sustainable choices from the marketplace,” the May 25 letter read, adding that this would contribute to the growing issue of “the loss of competitive pressure to improve climate and environmental performance in financial services” as consumers seek more climate-conscious options.

The letter also highlighted concerns that the level of climate risk in the Canadian economy could worsen with the loss of a more climate-focused banking player like HSBC Canada.

“We urge you to consider the impacts of this proposed acquisition on diminished competitive pressure on green financial choices and increased climate risk, and to reject the proposed acquisition of HSBC Canada by RBC,” the letter read.

RBC spokesperson Andrew McGrath said the banking sector will remain competitive and the planned acquisition will “put more of Canada’s financial sector in Canadian hands.”

As for RBC’s approach to climate change, he said the bank’s “greatest impact” will come from helping clients reduce their emissions, particularly those in high-emitting sectors. McGrath said the HSBC acquisition also offers potential to develop sustainable finance efforts.

“One of the reasons the proposed HSBC acquisition is so attractive to us is because of their strong offering, including their great capabilities in sustainable finance, and we look forward to building on that in the years ahead,” he said in an email.

Asked whether environmental concerns would be considered in the case, a spokesperson for the Competition Bureau said it would consult with a “wide range of industry participants” and consider elements “including the level of economic concentration in the relevant industry and the merging parties' market shares.”

As of Monday, Environmental Defence received a response from the Competition Bureau, viewed by BNNBloomberg.ca, confirming the letter would be considered in the review process.

Segal said that is positive news.

She also noted that Finance Minister Chrsytia Freeland has final say on the transaction, and argued that the minister should keep climate risk in mind when making her decision.

“This a matter of consistency,” Segal said. “The government has net zero targets which apply to most economic activities and sectors, and if it's not a lens that’s applied to mergers and acquisitions, that's a significant oversight.”

BNNBloomberg.ca has reached to Freeland’s office for comment.